It Pays To Lean Against The Crowd
“Well, that doesn’t mean WE’RE going to do it!” or some version of that was one of my dad’s favorite phrases growing up. At the time, it felt punitive. Why, I wondered, couldn’t I have those popular shoes (Adidas Sambas) or go on that vacation (our household didn’t recognize the phenomenon of “Spring Break”) or join that team (Sundays were dedicated to family, not travel sports).
Although I haven’t replicated all of the same decisions as my father, I can now recognize that Dad was instilling in me a particular type of resilience—the strength to go against the proverbial grain and lean against, rather than follow, the crowd.
It’s a contrarian skill set that has oft benefited me, and hopefully it’s a skill that has been passed down to my children. It’s also a skill that virtually ALL of the best investors possess.
This week, Tony Welch gives us a much-needed reminder in crowd leaning, and that’s not it—for this week’s podcast, you’ll also get a chance to meet Tony and learn about The Making of a Chief Investment Officer.
It’s a shorter newsletter and podcast this week, but we know you’re likely dedicating a bit more time than usual to some great college basketball, so thanks, as always for joining us!
Tim
Tim Maurer, CFP®, RLP®
Chief Advisory Officer
In this FLiP weekly you'll find:
Financial LIFE Planning [PODCAST]:
The Making Of A Chief Investment Officer
Quote O' The Week:
Rosa Parks
Weekly Market Update:
It Pays To Lean Against The Crowd
Financial LIFE Planning
The Making of a Chief Investment Officer—And How to Navigate Markets in Uncertain Times
🎙 Host: Tim Maurer, Chief Advisory Officer at SignatureFD
Episode Overview:
How does someone become a Chief Investment Officer, and what lessons can we learn from their journey? In this episode, Tim Maurer introduces Tony Welch, an investment expert whose insights have been a staple of the Financial LIFE Planning Weekly Newsletter.
Tony shares the path that led him to become a leading investment strategist, the principles that guide his approach to markets, and how investors can maintain perspective in uncertain times. Whether you're an experienced investor or just trying to make sense of today’s market volatility, this conversation offers valuable insights into both the person behind the expertise and the principles that endure through market cycles.
What You’ll Learn:
✅ The career path of a Chief Investment Officer—how Tony got here and what he’s learned
✅ What drives market volatility and how to think about it long term
✅ The fundamental principles of investing that don’t change, no matter the headlines
✅ Why financial life planning is about more than just portfolio performance
Key Takeaways:
📈 Tony’s Investment Philosophy: How a disciplined, research-driven approach helps investors stay the course
📉 Market Insights: Understanding market swings without overreacting to the noise
💡 Big-Picture Perspective: How SignatureFD helps clients align wealth with purpose
Quote O' The Week
This is the type of quote that means so much more coming from its author:
Rosa Parks
“You must never be fearful about what you are doing when it is right.”
Weekly Market Update
Buckle up, friends. Investing isn’t for the faint of heart—and that’s precisely why it’s helped many who are willing to lean against the crowd build wealth:
- 1.53% .SPX (500 U.S. large companies)
- 0.47% IWD (U.S. large value companies)
- 1.64% IWM (U.S. small companies)
- 1.23% IWN (U.S. small value companies)
- 0.75% EFV (International value companies)
- 1.27% SCZ (International small companies)
+ 0.19% VGIT (U.S. intermediate-term Treasury bonds
It Pays To Lean Against The Crowd
Contributed by Tony Welch, CFA®, CFP®, CMT, Chief Investment Officer, SignatureFD
The release of the Conference Board’s Consumer Confidence Index showed weakening consumer sentiment. Notably, consumers became quite dour on the prospects for the stock market. Negative stock market sentiment rose 10.5 percentage points to 44.5%.
Fortunately, it has historically paid to lean against the crowd, rather than capitulate and join their bearish bandwagon. The table below from Bespoke Investment Group shows subsequent market returns following large increases in negative stock market sentiment. Note that in seven of eight cases, the market was higher six and 12 months later. In six cases, the gain was over 14% in the following year.
When sentiment becomes extreme, either overly optimistic or pessimistic, we want to take note. It often pays to beware these extremes, and lean against the crowd.
This is a simplistic example. There is no way of knowing with perfect foresight what the sequence of returns may look like. But this does illustrate the power of compounding. Starting as early as possible is a key factor in long-term financial well-being.
The Message from Our Indicators
The U.S. economy is likely slowing from its above-potential growth of 2024. The bad news is that consumer confidence has been weakening. The Conference Board’s Consumer Confidence Index sank to its lowest level since January 2021. That’s notable as confidence is now lower than what we observed in the inflationary impulse of 2022 that resulted in a bear market in stocks as well as a notable correction in bonds. Additionally, inflation expectations have continues to march higher primarily owing to concern over tariffs.
The good news, however, is that the economy entered 2025 in good shape as evidenced by the upwardly revised Q4 GDP and corporate profits. That means that there is likely some cushion against a relatively short period of trade policy uncertainty. But that likely has its limits. If uncertainty lingers for quarters to come, economic risks will likely build. For now, the hard data, such as durable goods orders, consumer expenditures, and housing starts imply that the economy remains in expansion mode, despite the risks from falling sentiment.
Speaking of corporate profits, economy wide profits rose 5.4% in the fourth quarter and 6.9% over the year. Profits as a share of the total economy rose to 13.5%, which represents a new record high. Margin expansion was likely more a story for 2024 than it will be in 2025 but solid fundamentals help support a feedback loop whereby companies continue hiring (not firing at least), consumers continue to spend, and profits maintain momentum. We need to watch for deterioration in margins owing to slower economic growth and/or tariffs but for now, corporate fundamentals are strong.
From a trend perspective, as noted above, sentiment towards the stock market has weakened quite a bit this year. Just because sentiment is pessimistic doesn’t mean that the correction is over or that volatility will soon subside. But, weak sentiment readings have historically correlated with better than average forward 12-month returns. We would look to market breadth to give us the “all-clear” signal that the correction is largely behind us. For now, it appears more likely that the market is still in a correction process but in the absence of a recession, corrections have tended to be contained, eventually resolving higher. That remains our base case, despite a more uncertain policy environment in 2025.
Thanks for reading this week, and if you have any topics that you’d love to see us address, please let us know!
Tim